Obama on oil speculators: “That’s not the way the market should work.” Er, actually…

posted at 6:41 pm on May 3, 2012 by Erika Johnsen

In all of his class-warmongering glory, President Obama is fond of perpetuating the (intellectually cheap, populist) notion that the activities of the financial class are somehow a zero-sum game. In his eyes, wily and undeservedly affluent business executives only secure their ill-begotten profits at the expense of the little guy, instead of the reality in which everyone is, in fact, better off as a result of the economic growth that comes part and parcel of their actions. Speculators, and oil speculators in particular, get the especially short end of the stick:

The president’s painfully deliberate misrepresentations of his energy policy aside, his insistence that there is no “silver bullet” to bring down energy prices and that “drill, baby, drill” is a slogan only good for a bumper sticker… isn’t really accurate. No, approving the Keystone pipeline or immediately issuing more offshore drilling permits mightn’t flood the available supply with oil directly from those projects for several years to come, but it may result in speculators currently holding onto oil, in anticipation of higher prices later, to instead release it up for sale today.

Speculation is indeed a huge part of any commodities market, but hand-rubbing CEOs aren’t the only ones who benefit from it — even normal, everyday Americans like to grow their own personal wealth through investments in the futures market. The beauty of the free enterprise system is that it’s just a collection of information, translated into prices through trading, and speculators do their best to hedge risk and predict price movements — in the face of the global demand trends and the volatility in the Middle East that the president mentions. Really now, speculators ain’t all that bad, and frankly, targeting them as merely greedy capitalists for short-term political gain isn’t doing anyone any favors (note the president’s Enron reference, gently suggesting that all of this is illicit, eeevil activity).

The chairman of the world’s largest futures exchange recently had some choice words on President Obama’s crusade to punish oil speculation:

Two weeks after President Barack Obama blamed speculators, traders who wager on the future direction of commodity prices, for driving fuel prices higher and urged regulators to be tougher on them, Terry Duffy, the executive chairman of exchange operator CME Group Inc., hit back with a pointed explanation of investors’ role in financial markets.

“People need to study their facts before criticizing speculators,” Mr. Duffy, whose Chicago company is the largest futures exchange by volume, said in an interview on the sidelines of the Milken Institute’s Global Conference. He argued that speculators provide vital liquidity to a host of markets.

Last month, the president accused “speculators” of rigging the oil markets, pushing up fuel prices for ordinary Americans. “Rising gas prices means a rough ride for a lot of families,” he said in a speech at the White House. “We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage and driving prices higher, only to flip the oil for a quick profit.”

Mr. Duffy dismissed the criticism, saying that speculators play an important part in financial markets. “When the Dow goes above 13000, Google goes above $600 per share and everybody celebrates, who do you think did that? The U.S. equity market is 100% speculators,” he said.

Mr. Duffy pointed out that the derivatives markets also help the Treasury Department and American taxpayers to save money on the cost of sovereign debt by allowing traders to hedge risks on Treasurys.

Politicians targeting oil speculators is nothing new, just a popular theme that reemerges whenever gas prices start to rise. President Obama’s latest proposed crackdown on speculators is all just a part of the White House’s larger narrative that us dumb consumers need the federal government to “protect us” from the malfeasance of the big, bad financial class, re: Dodd Frank, the Consumer Financial Protection Bureau, etcetera. Oh, big government — whatever would we do without you?

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…his insistence that there is no “silver bullet” to bring down energy prices…

Yet – the Dems have been putting off every proposal to incrementally solve our energy problems for 40 years, insisting that it isn’t big enough to solve the problem. (i.e. they’re waiting for a Silver Bullett)

The duplicity is infuriating.

CycloneCDB on May 3, 2012 at 6:44 PM

..for a guy who likes to eat dog, he sure gets a lot of dog crap on his shoes, don’t he?

The War Planner on May 3, 2012 at 6:45 PM

You know how to really screw the speculators dumba$$??? Rapidly boost production.

BigWyo on May 3, 2012 at 6:45 PM

bho has to pit any and every one against the others, right or wrong. What hasn’t bho pitted one group against another?
I’m surprised ANY PRESON/BUSINESS/GROUP would fund bho!

The only thing bho has going for him, union thugs, foto’s, and foreign donors? I might add, we are probably funding the whole blooming bunch!
L

letget on May 3, 2012 at 6:45 PM

If it wasn’t for speculators, the supply of things would always be feast or famine. You’d either be swimming in it, or be in long lines for it.

RBMN on May 3, 2012 at 6:45 PM

Pres. Dog Breath is an—

1. idiot

2. demagogue or

3. both

Futures markets EXIST to take risk out of PRODUCTION.

“Speculators” are HALF the equation, and without them, hedge positions against the cash market would be impossible.

Ragspierre on May 3, 2012 at 6:47 PM

Like he would know anything about how real business operate. Not.

IrishEyes on May 3, 2012 at 6:47 PM

operate = operates

fat fingers!

IrishEyes on May 3, 2012 at 6:48 PM

Every leftist wants gas prices to go up to create their high density mass transit utopia. Say, what do you think happens to land values when swaths of improvable land outside of the city become inaccessible?

Transpo on May 3, 2012 at 6:49 PM

The. President. Is. An. Idiot.

My God, and he stands to be re-elected by the other idiots….

coldwarrior on May 3, 2012 at 6:49 PM

He has no idea about how the economy works and he doesn’t really care to be educated.

CorporatePiggy on May 3, 2012 at 6:50 PM

There is an easy way to destroy the speculators if you hate them so much Obama. Open up our energy resources full bore tomorrow. Anyone speculating and holding onto oil today will lose massive amounts of money. Or, you can play right into their hands, and keep the oil resources under tight wraps guaranteeing their profits.

astonerii on May 3, 2012 at 6:51 PM

A Segway on every sidewalk…a Volt in every garage.

And that high-speed rail thing…that too.

That appears to be the crux of Obama’s long-term economic policy.

That and lots of re-education camps for recalcitrant proles.

coldwarrior on May 3, 2012 at 6:51 PM

Obama on oil speculators: “That’s not the way the market should work.”

 
Based on a compression of some post-it notes stuck to some unread documents on his desk.

rogerb on May 3, 2012 at 6:51 PM

his insistence that there is no “silver bullet” to bring down energy prices…

When did Obama ever state that he wanted to bring down energy prices ?
IIRC, he promised something totally opposite just a few years ago

burrata on May 3, 2012 at 6:53 PM

You know who should decide how a market “should” work?

The guy whose first real job was running for president.

lorien1973 on May 3, 2012 at 6:54 PM

Why not start with Corzine.

the_nile on May 3, 2012 at 6:54 PM

Or..

Deft distraction designed to put the blame on anyone in the oil business for the higher prices of gasoline…anybody but Obama.

$1.72 when he took office…$3.88 today.

All by design.

coldwarrior on May 3, 2012 at 6:56 PM

Hype & Blame 2012

visions on May 3, 2012 at 6:57 PM

Most oil is NOT bought via trading on exchanges. It is contracted but the price is often indexed to exchanges. Different types and sources of crude oil have discounts below the exchanged rate.

PLUS if oil is bought (even via the exchanges) here in the U.S. OR Canada, it does not have to then be loaded aboard ship and transported then discharged into a pipeline terminal, as most of it does not get offloaded directly at refineries.

Kermit on May 3, 2012 at 6:58 PM

But FNMA and Freddie Mac are the examples of how to run quasi government corporations…that have cost the American taxpayer almost $1 trillion dollars since 2008 with no hope of stopping…

d1carter on May 3, 2012 at 6:59 PM

Barry’s doing such a great job on the economy. Too bad he doesn’t spend any time talking about it. Oh, by the way, did you hear that Barry killed OBL?

GarandFan on May 3, 2012 at 7:01 PM

There is an easy way to destroy the speculators if you hate them so much Obama. Open up our energy resources full bore tomorrow. Anyone speculating and holding onto oil today will lose

This belies a groaning ignorance of futures markets.

NOBODY expects delivery on a futures contract.

There isn’t enough storage capacity anywhere to make a dent in the supply, so it oil can’t be withheld from the market in practical terms.

A futures contract is almost totally divorced from “real stuff”, except as a bet against the spot (cash) price at the maturity of the future traded.

Ragspierre on May 3, 2012 at 7:02 PM

He has no idea about how the economy works and he doesn’t really care to be educated.

CorporatePiggy on May 3, 2012 at 6:50 PM

…the community organizer, who on a Senator’s salary and perks…and a wife who made hundreds of thousands for a ‘show up’ job… were ready for a family financial BK….until the book royalty money started rolling in… should SDASTFU!

KOOLAID2 on May 3, 2012 at 7:05 PM

Speculating that oil prices will rise under this president is like speculating that the sun will rise tomorrow.

The Count on May 3, 2012 at 7:08 PM

Speculating that oil prices will rise under this president is like speculating that the sun will rise tomorrow.

Not if you follow the futures for oil.

They rise and fall, and Pres. Dog Breath is only A factor…one of many.

Ragspierre on May 3, 2012 at 7:09 PM

Pay close attention. You are witnessing the creation of a communist dictator, day by day.

I really wish this was happening in a different country though.

KMC1 on May 3, 2012 at 7:10 PM

A futures contract is almost totally divorced from “real stuff”, except as a bet against the spot (cash) price at the maturity of the future traded.

Ragspierre on May 3, 2012 at 7:02 PM

And here I thought speculation in any market carried some risk…silly me…You’d almost have to think some one, somewhere would take it in the shorts if the bottom fell out on price…

Where do I sign up for this easy money???

BigWyo on May 3, 2012 at 7:11 PM

And here I thought speculation in any market carried some risk…

They DO involve risk.

Unlike a stock trade (which can be a win-win over time) a futures trade HAS to have a winner and loser…unless the price is equal to the purchase on the maturity date. Which is very rare.

Ragspierre on May 3, 2012 at 7:14 PM

http://www.qando.net/?p=12902

That gives you a pretty good graphic idea of WHY there are futures markets at all.

They have HUGE utility, and prevent wildly fluctuating fortunes for PRODUCERS by allowing them to hedge against the extremes of their cash markets.

Ragspierre on May 3, 2012 at 7:17 PM

Either lies about or doesnt understand: the markets, free enterprise, capitalism, the constitution, separation of powers, Role of the courts, how to secure the borders, the geneva convention, peace through strength, balancing a checkbook, the definition of transparency, freedom of religion help me out Im sure Im missing a few things.

ldbgcoleman on May 3, 2012 at 7:19 PM

Politicians targeting oil speculators is nothing new, just a popular theme that reemerges whenever gas prices start to rise.

Not to mention that idiot O’Reilly who wouldn’t understand speculators or oil company profit structures…..oh wait, I mentioned it….you’re an idiot Bill!

Rovin on May 3, 2012 at 7:20 PM

The option trading Uppereastside is pretty hurt by Barry attacking him.

galtani on May 3, 2012 at 7:21 PM

You know how to really screw the speculators dumba$$??? Rapidly boost production.

BigWyo on May 3, 2012 at 6:45 PM

Perhaps.

However recently supply was up. Demand was down. Oil prices were sky high. To say Futures were not the cause of this is just attempting to fool the average American.

But the Dow is an excellent point. The Dow is up because futures allow investors to artifically increase the prices of everything. Problem is this creates bubbles that will eventually burst. It is like I buy a house then my friend buys it from me for more on and on except in this case the house never actually changes hands.

It is hardly controlled at all now days. You need not actually ever take delivery of Oil or whatever. You just flip it over and over increasing the price and taking profit.

Sure stock prices are up but this is also why we are paying far more for gas and everything at the grocery store.

The bubble will eventually burst.

But neither party wants to do anything because it allows them to rob the middle class and get rich.

Steveangell on May 3, 2012 at 7:22 PM

http://www.qando.net/wp-content/uploads/cme2.png

That shows you don’t have any idea what you are talking about, Steveangell.

Remember, REAL STUFF is NOT what futures contracts are about.

They are better understood as BETS regarding where the CASH price of a commodity will be on a given date (month, usually).

Ragspierre on May 3, 2012 at 7:26 PM

http://www.qando.net/?p=12902

That gives you a pretty good graphic idea of WHY there are futures markets at all.

They have HUGE utility, and prevent wildly fluctuating fortunes for PRODUCERS by allowing them to hedge against the extremes of their cash markets.

Ragspierre on May 3, 2012 at 7:17 PM

Poppycock.

No one is saying eliminate futures.

We are saying eliminate the ability that currently exist of huge sovereign funds now have of cornering the market. Limit how much any one fund can have. Force companies to actually have at least the ability to take delivery. This just ends the artificial market while the real market continues to do what it does.

Steveangell on May 3, 2012 at 7:29 PM

Steveangell on May 3, 2012 at 7:22 PM

I might add that you won’t hear much from the state politicians either, since the high fuel price means higher taxes going into the state coffers. Our “federal reps” know this is big money too.

But like you’ve said….this bubble will burst.

Rovin on May 3, 2012 at 7:31 PM

First I am a Big DRILL BABY DRILL guy. If we have go get it.

Yes more supply right now would lower prices, but that is just a battle win, not a total victory.

Speculation is THE NUMBER ONE problem right now and will continue to be. And not your normal speculation or margin stuff. Speculation is healthy and is needed and has been around for a long time. The speculation that has hurt us is what was let lose by the passing of the CFMA (Comudities Futures Moderazation Act) of 2000. It was added as an Admendment or rider (whatever you call it) to the last spending bill of congress on December 15, 2000. It was signed into law six days later by Clinton. It took oversight of the oil speculation market away from the CFTC. Among other things.

Both parties are to blame for this. I have emailed, tweeted, etc. to try to get someone to talk about it but of corse nothing. Talking about this and admitting that both parties screwed the country does not meet the narratives of more oil or buy green bulbs.

Check this report and the graphs out and prepare to be pissed off even more.
http://www.bakerinstitute.org/publications/EF-pub-MedlockJaffeOilFuturesMarket-082609.pdf

http://www.govtrack.us/congress/votes/106-2000/h540

This is the act that was sited for allowing the swap stuff with the housing loans. So maybe that’s why it’s not being talked about. Because even though a rep in house and Grahm in the Senate sponsored the bill it passed with overwhelming majority of both parties. I wander how many polotitians have made a killing over the past ten years.

Before the hate. Please I am n conservative, drill baby drill, No Bomamamamam! I would love thoughts.

kara26 on May 3, 2012 at 7:32 PM

Either lies about or doesnt understand: the markets, free enterprise, capitalism, the constitution, separation of powers, Role of the courts, how to secure the borders, the geneva convention, peace through strength, balancing a checkbook, the definition of transparency, freedom of religion help me out Im sure Im missing a few things.

ldbgcoleman on May 3, 2012 at 7:19 PM

Actually, it’s not an “either/or” situation.

Like Bill Clinton, this President is a compulsive liar. Also like Clinton, he seems to be so to the point that he will lie even when it would be to his advantage to tell the truth, either from sheer reflex or just to see if he can get away with it. In fact, many of his lies seem motivated just by the thrill of doing so. (This is a characteristic of the sociopathic personality disorder, BTW.)

As for the other, The One is a complete ignoramus about anything beyond academia, the faculty lounge, and (probably) Frankfurt School Marxist dogmas. He has proven over and over again that he literally has no qualifications whatsoever to do anything, except be a Chicago-style machine politician. Which has never required any skills much beyond threatening and leg-breaking.

It’s not just that the President is utterly clueless about economics. He is also a far-left, academic ideologue with only minimal contact with reality.

And a farking idiot on top of it.

clear ether

eon

eon on May 3, 2012 at 7:33 PM

We are saying eliminate the ability that currently exist of huge sovereign funds now have of cornering the market.

Put up any support you have for that BULLSHIT. Name names of who is “cornering” any commodity.

You just flip it over and over increasing the price and taking profit.

This shows you have NO FLUCKING IDEA what you are talking about.

As each futures contract comes to maturity, it is closed out.

There is no “flipping”.

Ragspierre on May 3, 2012 at 7:33 PM

OT: Saw this bumper sticker this afternoon and I lost focus while driving.

http://compare.ebay.com/like/390389847813?var=lv&ltyp=AllFixedPriceItemTypes&var=sbar&_lwgsi=y&cbt=y

Ronald Reagan: AVENGE ME!

ProudPalinFan on May 3, 2012 at 7:40 PM

OT: Saw this bumper sticker this afternoon and I lost focus while driving.

http://compare.ebay.com/like/390389847813?var=lv&ltyp=AllFixedPriceItemTypes&var=sbar&_lwgsi=y&cbt=y

Ronald Reagan: AVENGE ME!

ProudPalinFan on May 3, 2012 at 7:40 PM

Dude!

visions on May 3, 2012 at 7:43 PM

kara26 on May 3, 2012 at 7:32 PM

It would take me a LONG time to wade through your citation, BUT…

generally, I am a frothing at the mouth free-market capitalist.

I distrust…with a world of excellent reasons…any regulatory scheme that does not come via market forces. Generally, they are LESS than worthless, and often very destructive.

That said, I’ll give this a read. I could not expect to digest it tonight.

Ragspierre on May 3, 2012 at 7:47 PM

Force companies to actually have at least the ability to take delivery.

Again, you have no idea what you’re saying.

Many people who trade in pork bellies (thousands of pounds per contract) are observant Jews. They couldn’t ethically take delivery of a package of bacon.

Seriously…!!!

Ragspierre on May 3, 2012 at 7:50 PM

Oil speculators are the most recent target for President Alinsky in his “pick a target” game. (Health insurers were his target in pushing Obamacare.) Energy producers should simply turn the tables on the Clown-in-Chief by exposing his blame game and demonstrating that he (and his greedy, never-taxing-enough fellow Dems) is the rightful target for the consumers’ ire.

Energy producers should ask retirees how much of their pension is dependent on energy production doing well. The same producers should ask consumers/taxpayers why the federal government is inflating the cost of fuel by not allowing the development of our own natural resources.

It doesn’t help that dimwits like Bill O’Reily perpetuate the myth of speculators being the cause of these high prices on the world market. Bill needs to be schooled by economists and people familiar with the energy industry. While he is being schooled, Bill needs to be gagged to prevent his ignorant rebuttals, and he needs to be told that he will be tested on how much information that he retains.

onlineanalyst on May 3, 2012 at 7:51 PM

You had me at…

Bill needs to be gagged

On this subject, at any rate.

Ragspierre on May 3, 2012 at 7:53 PM

Love the fact that he brings up Enron.

Mr. President, how did that work out for those at Enron who were manipulating the market?

Here is what President Obama does not get. If you let the market actually work, those who try to manipulate it artificially will get burned. The key is to allow those people and companies to fail. Now if you are just going to prop up failure, like oh I don’t know, GM. If there is not a penalty to pay for bad choices, then expect people to try and manipulate markets.

AndrewsDad on May 3, 2012 at 7:55 PM

I don’t understand why anyone is acting surprised. Progressives have always opposed rent-seeking. Always.

Even back to the preWWII Germany. Read the 25 Point Nazi Party Plank. Half of it is indistinguishable from the modern democratic party.

p0s3r on May 3, 2012 at 7:57 PM

Obozo is the dumbest president we’ve had in a long time. Everyone in the stock and commodities market are speculators. We all speculate as the future price and hope we guess right. I can’ t believe he is spouting this nonsense with a straight face. In the oil market prices go up and down based on many factors, most of which is geared to supply and demand issues. If something happens that looks like it may effect supply, prices go up. If demand looks like it may drop, prices go down. Give this fool a basic lesson on economics.

Ta111 on May 3, 2012 at 7:57 PM

I might add that you won’t hear much from the state politicians either, since the high fuel price means higher taxes going into the state coffers. Our “federal reps” know this is big money too.

But like you’ve said….this bubble will burst.

Rovin on May 3, 2012 at 7:31 PM

Actually, higher fuel prices means lower fuel taxes. At least in WA state where the tax is something like 47 cents per gallon. The higher the cost per gallon, the less people drive. The less people drive, the fewer gallons they use. The fewer gallons, the less tax.

In college I worked for a oil distributor and they made the big profits when prices were down, not up. Customers were not concerned as much with conserving and therefore bought more and there was less price competition when a product was cheap so you could get a higher margin. Low prices were a win win.

AndrewsDad on May 3, 2012 at 8:03 PM

You had me at…

Bill needs to be gagged

On this subject, at any rate.

Ragspierre on May 3, 2012 at 7:53 PM

A big “gushing” ditto!

Rovin on May 3, 2012 at 8:04 PM

This Obama guy spent how long in Chicago and never once stopped in on the Exchange downtown?

Speculators….all of them. And those folks who are trying to build or maintain a nest egg buy into commodities, through a legal brokerage…and thousands, no, millions of retirement accounts group and individual are tied to the same commodities…all of them speculators.

Every time government tries to skew the market through artificial means, from rent control to bailing out whole industries it almost always skews the price upwards, far in excess of what it should have been under normal free market forces.

Get off our backs, Barrack. Dammit, just get off our backs.

You are killing us out here in flyover land.

coldwarrior on May 3, 2012 at 8:05 PM

Oh, big government — whatever would we do without you?

PROSPER!!!

…and the Libs hate the idea of prosperity!!

landlines on May 3, 2012 at 8:11 PM

AndrewsDad on May 3, 2012 at 8:03 PM

With all due respect, millions of workers in California don’t have this option you’re describing.

In college I worked for a oil distributor and they made the big profits when prices were down, not up. Customers were not concerned as much with conserving and therefore bought more and there was less price competition when a product was cheap so you could get a higher margin. Low prices were a win win.

Volume adds/creates wonderful profit structures right up to the point when the consumer stops buying out of necessity. The price of fuel in California has been at or over $4.30 for almost a year and, (along with skyrocketing food prices) is choking this state’s economy. Washington state is a completely different demographic.

Rovin on May 3, 2012 at 8:15 PM

Rovin on May 3, 2012 at 8:15 PM

GET OUT OF THERE…!!! Before it’s too LAAAAATTTTE…

Ragspierre on May 3, 2012 at 8:19 PM

Ragspierre on May 3, 2012 at 8:19 PM

I’m stuck Rags! Born and raised in Sacramento. My aunt was Pat Brown’s private secretary, (she’s turned Jerry over her knee and paddled his butt for running around the office). Moved north into Humboldt County in the summer of ‘69 and have been here most of my adult life. We were a working class family that “just got by” most of the time, (six kids and two loving adults—father who has passed was a former Marine that landed and survived Guadalcanal). The point is, despite even the liberal element here in the north, (Humboldt State and the skulls full of mush), I love it here. It’s God’s country, (and mine too)……. and no one’s running me out of here.

Rovin on May 3, 2012 at 8:49 PM

Enron? Wasn’t Enron engaged in the carbon credit scheme? How did that work out, greenies?

onlineanalyst on May 3, 2012 at 8:57 PM

*shrug* As long as gas prices continue to climb, Obama can point and blame all he wants…the average American puts the blame squarely on HIM.

sage0925 on May 3, 2012 at 9:08 PM

I’m new to the financial markets game. Will someone explain something to me? Assuming O is right and speculators want oil prices to be high to they can financially rape us, there’s something I don’t get. Why would speculators care if the price of oil is high? If they thought the price of oil was going to decrease they could still make a profit by short selling. They could increase that profit too by selling a call option. So what does the speculator care if prices go up or down?

Goldenavatar on May 3, 2012 at 9:10 PM

Rovin—

Born in the Queen Of Angles Hospital in Holly-FREAKING-wood.

Came to Texas when I was eleven.

LOVE the country in California, but it is TOO full of crazy people for me.

I’ll leave a candle in the window, case you need to bolt.

Ragspierre on May 3, 2012 at 9:19 PM

You know how to really screw the speculators dumba$$??? Rapidly boost production.

BigWyo on May 3, 2012 at 6:45 PM

Exactly. It’s sad that the President of the United States (and people like Bill O’Reilly) gasbag about the e-e-evil speculators while they either don’t have a clue how markets work or they are deliberately lying about how markets work.

Government in America pulls in a hell of a lot of money off of oil and gas taxes. Do they really want prices to fall and decrease their haul?

Django on May 3, 2012 at 9:52 PM

You know, at the end of the day I think the condescension of academia, Obama’s crowd, toward business is little more than an indication of envy.

Seriously. If a college professor didn’t show up for work, would society crumble? But if the guy who hauled off your garbage, or snaked your drain, or climbed the pole at midnight to replace a blown transformer fuse didn’t show up, life as we know it would halt within a week.

So I think that’s what guys like Obama say, ‘that’s how things should or shouldn’t work,’ while others, the majority of Americans, are out there actually working and not just pontificating on the actual work that’s being done.

James OK on May 3, 2012 at 10:14 PM

Speculation is good. We need it. But there are those that will game the system.

Prior to the CFMA 80% of speculation was done by the “consumer”, ie. oil companies and airlines. Around 20% was paper. Since the second quarter of 2001 oil has risen on the same plain as the increase of paper speculation. The short term threat of increase supply does cause backwards movement. In the end with all the supply in the world this would still end up being a problem.

You can agree with this process but facts are facts. Paper speculation is drive oil higher than it needs to be. The numbers don’t lie. If you like this process that is fine. But don’t act like its not the issue.

Again yes increase supply will impact prices in short term but when that supply is worked into the system the current speculation model will drive prices up again.

Other Comodities can not be compared because others are regulated by the CFTC. Oil has not been since Jan 2001.

It’s just the way it is. Now is Obama demagoging the issue? Yes. Is his aimto fix this problem? No. He knows the real problem and so do a lot of others. Again I am not talking about speculation or margin that has been around for years. We need it. Just what the CFMA set in motion.

Where am I wrong?

kara26 on May 3, 2012 at 10:26 PM

I am often amazed at how some people think the futures markets work, at least as I understand it.

Speculators take a position on a commodity by either buying or selling contracts for the commodity that results in something referred to as “open interest”. When a speculator wants to reduce or close out his open interest he begins doing the opposite — if he bought contracts, now he sells them, and vice versa. In a simplistic description, the speculator makes money when the price of the contracts moves in the “right” direction for how he holds his contracts. Price goes up, he wins if he bought contracts. Price goes down, he wins if he sold contracts. He gets credits or debits to his margin account on a daily basis when contracts close for the day on that exchange.

As the contracted delivery date approaches, the speculator tries to close out his position because if he doesn’t then he has to deliver or accept the contracted commodity with all that that implies. At this point the spot market (cash) price is what the commodity is worth. Nominally, a speculator who bought a contract, and didn’t close out his interest by selling a contract, has to take delivery of the commodity and pay the supplier the contracted price. Similarly a speculator who sold a contract has to supply the commodity (buying it on the spot market if he does not actually have the commodity), deliver it, and take payment at the contracted price.

Ideally at delivery the speculator has closed his position and the only contracts left are for people who want to deliver and people who want to accept the commodity.

The idea that futures speculators can corner the market is incorrect. There is no limit to the number of contracts so long as the speculators have sufficient margin to meet the exchange requirements. The only way to actually corner the market is for the speculator to buy contracts AND accept delivery. I don’t think there are many speculators with that kind of resources and determination.

/rant :)

Russ808 on May 3, 2012 at 10:36 PM

The futures market exerts a constant demand that none of us individually, or in geographic communities, can replicate. Without speculators, gas would not be endlessly and invariably available to us.

Having a futures market in which nationality and fealty to particular oil companies is meaningless is also a key factor in a quiescently produced “market price” of oil.

The reason I have to pay $4.10 for a gallon of gas is that the US and the state of California restrict supply by government fiat, and heap excise taxes on the purchase. If we eliminated the futures market, I would simply find gas less widely and constantly available. I might or might not pay less for it.

J.E. Dyer on May 3, 2012 at 11:06 PM

Maybe Obama got all his commodity and market ideas from Eddie Murphy’s “Trading Places”?

Randolph and Mortimer Duke, those evil speculators, the memories of whom seared into Obama’s mind as they attempted to capture the orange juice market and destroy the lives of millions of Vitamin-C deficient children.

coldwarrior on May 3, 2012 at 11:14 PM

Ideally at delivery the speculator has closed his position and the only contracts left are for people who want to deliver and people who want to accept the commodity.

Russ808 on May 3, 2012 at 10:36 PM

Thanks for the very clear explanation of how the speculators work.
If I understand correctly, the continual “flow” of contracts bought and sold provide successive approximations to a final price acceptable to both the deliverers and the acceptors of the commodity.

For a look at what happens when futures trading is banned,
consider the onions of the field. (final graf)

In the 2000s, onion prices were significantly more volatile than corn or oil prices. This volatility led the son of a farmer who initially lobbied for the ban to advocate a return to onion futures trading.

(Saw this explained very well on another post, but can’t find it now.)

AesopFan on May 4, 2012 at 12:02 AM

Anyone to blame but himself.

Real men hold themselves accountable. This tool blames all for his failures.

I know, let’s give everyone a trophy that plays a game.

Any wonder why the country approves of this clown?

dthorny on May 4, 2012 at 12:43 AM

… “People need to study their facts before criticizing speculators,” Mr. Duffy, whose Chicago company is the largest futures exchange by volume…

I agree with you Mr. Duffy.

However, allow me to clarify something for you… Neither President Obama, nor any contemporary liberal, nor Democrat, needs to study facts… they can just feel the force, er, truth, or can simply create their own facts.

This is why colleges and universities today are mostly run by liberals… to indoctrinate the future generations of communists, er, teach the future generations of leaders truth and facts so that they can re-educate, er, teach the rest of us.

I guess that means that since we disagree with the President, Mr. Duffy, by current liberal Democrat standards of facts and truth, that we are racists…

Welcome to the club.

Danny on May 4, 2012 at 2:36 AM

“More Navy SEALs coming forward to criticize Obama for aftermath of Bin Laden raid?”

Holy crap! Even AP is tossing around meaningless question marks now. You didn’t ask a question, Allahpundit. You made a true statement. Don’t slime it with a question mark like Ed Morrissey does.

Kevin M on May 4, 2012 at 6:53 AM

Next step, nationalize oil companies.

Kissmygrits on May 4, 2012 at 9:14 AM

…his insistence that there is no “silver bullet” to bring down energy prices…

This reminds me of the hick farmer with a leaking roof: When it’s not raining, there’s no need to fix it. When it’s raining, can’t fix it now cause it’s raining.

The Democrats approach to oil policy: when gas prices are low, there’s no need to fix it. When gas prices rise, can’t fix it because it’s an emergency.

Deafdog on May 4, 2012 at 9:23 AM

Profit to earnings ratios are unfairly high! These speculators need to do their fair share to support Julia!

bitsy on May 4, 2012 at 9:29 AM

“We laid more pipe… We drilled more oil … We’ve opened more areas… We’ve quadrupled rigs…”

We we we we. Someone must have told him to stop using “I” all the time so now we’ve switched to the royal weewee.

bitsy on May 4, 2012 at 9:47 AM

There certainly are a lot of people that are clueless as to how the futures market operate, commenting on something they don’t understand.

mwdiver on May 4, 2012 at 9:51 AM

Hi-ho the Barry O, or any U.S. President, can’t control oil-futures traders or “speculators” because many of them are located overseas, and not subject to U.S. laws.

But speculators can drive prices both ways: if they believe that future supplies (for example, of crude oil) will be greater than current supplies, they will try to sell oil at today’s higher price than lower future prices. This will bring DOWN the price of crude oil even in the present market.

When then-President George W. Bush removed restrictions on offshore drilling in July 2008, crude oil prices plummeted by 60% within six months. Not because a whole lot of oil suddenly hit the market, but because “speculators” anticipated a future increase in supply, and tried to sell oil while it was still expensive.

If Obama wants to blame “speculators” for his own choking off our own supply of oil, let him. Romney needs to explain that, if elected, he will remove restrictions on drilling, natural gas fracking, and oil pipelines, and let the “speculators” drive the market in the right direction–toward LOWER prices.

Steve Z on May 4, 2012 at 10:00 AM

This puke knows nothing about anything sophisticated, intelligent or dealing with reality. Bad boy, Southwest Airlines – they speculate on oil too. Ridiculous ja

democratsarefools on May 4, 2012 at 11:18 AM

democratsarefools on May 4, 2012 at 11:18 AM

OK, this is a good example of a hedge position by SW Airlines.

Producers (i.e., SW Airlines) take hedge positions on BOTH their in-puts and their output (when possible).

For instance, a feed-lot operator has hedge positions on CORN and FEEDER CATTLE, and on FED CATTLE.

Ragspierre on May 4, 2012 at 12:28 PM

Evil speculators have driven the crude oil price down more than $7 a barrel in the last few days. Where is the investigation?

agmartin on May 4, 2012 at 1:26 PM